NU Online News Service, Aug. 12, 12:45 p.m. EDT
The future of Financial Guaranty Insurance Co. is in grave doubt after the company reported a second quarter net loss of $16 million as its exposure to the securitization of collateralized debt obligations takes a toll.
In a filing on its website with the New York State Insurance Department, the New York-based guarantee insurer said that in its current precarious financial condition, "management has concluded that there is substantial doubt about the ability of the company to continue as a going concern."
On Aug. 4, FGIC revealed that it filed for Chapter 11 Bankruptcy protection and is seeking to reorganize.
The company reported an underwriting loss of more than $79 million in the quarter and net investment gain in excess of $59 million.
FGIC said in a statement that the quarter's results were impacted by loss and loss adjustment expenses of $88.7 million (net of reinsurance). The loss was primarily due to its exposure to residential mortgage-backed securities insured by FGIC from 2005 through 2007. These securities have continued to deteriorate through the second quarter of this year.
The result, the company said, is that it has a policyholder's surplus deficit position of approximately $1.69 billion and capital impairment of $1.75 billion, an increase of $46.6 million for the quarter.
Under New York State law, the company must maintain a surplus of $66.4 million, it said.
Because of the surplus deficit the company ceased writing new business in both the United States and United Kingdom last year. The company suspended paying all claims in November of last year.
For the first six months of this year, FGIC reported net loss of $340 million compared to net loss of $893 million the previous year. The company shows an underwriting loss of $429 million compared to $926 million for the same period in 2009.
In its filing, FGIC explained that one of the principal factors for its continued survival is adoption of an offer to Sharps SP I LLC to exchange residential mortgage-backed securities and asset-backed securities that are currently unpaid with cash and promise of future payments.
The company noted the insurance department may also decide to rehabilitate or liquidate the company due to its surplus deficit position, which does not guarantee the company would survive.
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